Avoids tweaking 5.75% key rate, citing global uncertainty
The policy-setting Monetary Board decided to keep the Bangko Sentral ng Pilipinas (BSP) Target Reverse Repurchase (RRP) Rate at 5.75 percent steady, the BSP said, citing economic uncertainty and other global trade risks.
Interest rates on overnight deposit and lending facilities will also stay at 5.25 percent and 6.25 percent, respectively, the BSP said.
BSP Governor and Monetary Board Chairman Eli Remolona said in a press conference uncertainty hovering over inflation and the economic growth outlook dictates keeping the status quo in the current monetary policy settings.
“Normally, we would have cut [the rate] but something has changed. The thing that has changed is the uncertainty going on globally, especially the uncertainty over trade policy,” Remolona said.
“We’re not quite comfortable with evaluating the impact of that – the uncertainty itself,” Remolona added.
Before deciding on the timing and magnitude of further easing policy rates, the board “deems it prudent to await further assessments of the impact of global policy uncertainty and the potential effects of the actual policies,” according to the central bank chief.
Inflation outlook
Remolona said they also considered the fact “the latest inflation forecasts are not materially different from the previous forecasts in December.”
During the board meeting on Thursday, the risk-adjusted inflation outlook was raised to 3.5 percent from 3.4 percent in the previous meeting in December 2024.
The forecast for 2026 is unchanged at 3.7 percent., while inflation expectations remain within the target range.
Actually when?
The board is also considering keeping the rates steady in its next meeting set for April.
“We’re still in the easing cycle. We’re not thinking about raising rates. For now, it’s a question of when we actually ease. I think we have five more meetings this year. In some of those meetings, we will probably ease,” Remolona said.
The board also expects domestic growth prospects to remain firm.
Balancing act
However, the uncertainty over global economic policies and their impact on the Philippine economy has increased significantly, the central bank chief said.
“On balance, (however, the) uncertainty about the outlook for inflation and growth warrants keeping monetary policy settings steady,” he added.
To ensure price stability the board will depend on data to sustain both the economy and employment.
Economists weigh in
Pantheon Macroeconomics head Emerging Asia economist Miguel Chanco said “this surprise pause won’t last long. We reckon that today’s rate hold (or pause), following three consecutive cuts, will prove to be short-lived.”
The macroeconomic research group sees the Philippines’ gross domestic product (GDP) growth as sluggish, while inflation is under control and the BSP has ample policy space for rate reductions, without losing the credibility of its “less restrictive” posture, Chanco said in a separate report.
Gareth Leather, senior Asia economist of London-based Capital Economics, also expects the Monetary Board “to resume its easing cycle soon.”
“We think this represents a pause, rather than a halt to the easing cycle. Before today’s meeting, rates had been lowered at the BSP’s three previous meetings,” Leather added.
Capital Economics sees the uncertainty over US trade policy will remain for some time, and that the BSP needs some time as well before it decides on its response.
“Our assumption is that the Philippines will be hit by a 10 percent universal tariff, but that the impact will be relatively small,” Leather said.
“Provided inflation remains under control, then further cuts are likely over the coming months,” he added.
Capital Economics expects a 100 bps in total rate cuts from the BSP this year.
Michael Ricafort, RCBC chief economist, said the board took on a cautious stance, pending any potential inflationary impact from higher US import tariffs.
“Relatively benign inflation at the 2 percent to 3 percent levels is still possible up to early 2025,” which falls within the central bank’s inflation target of 2 percent to 4 percent, which justifies future policy rate cuts,” Ricafort added.
